Feature

Intuit’s cofounder challenges traditional companies to follow the lead of internet superstars—and of innovative peers such as Honda, Procter & Gamble, and Hyatt—in tapping the contributions of countless people beyond their organizations.

A company’s bid to rally an industry ecosystem around a new competitive view is an uncertain gambit. But the right strategic approaches and the availability of modern digital infrastructures improve the odds for success.

Feature

Many internet superstars owe much of their success to the active and passive contributions made by countless people from outside their organizations. Think, most obviously, of Facebook profiles, eBay goods, YouTube videos, Wikipedia entries, and, less obviously, of the aggregated buying behavior underlying Amazon recommendations and the donated use of personal-computer resources underpinning Skype’s internet-based phone network. Cook, the founder of Intuit (maker of financial software products such as Quicken and TurboTax), challenges traditional companies to tap this emerging source of value by actively creating what he calls user contribution systems.

The user can be a customer, employee, sales prospect—or someone with no previous connection to the company at all. The contribution can be actively offered work, expertise, or information, as well as passive or even unknowing contributions, such as behavioral data that are gathered automatically as a by-product of a transaction or an activity. The system is the method, usually internet based, by which contributions are aggregated and made useful to others. Such a system creates value for a business as a consequence of the value it delivers to customers.

In this article, Cook describes the personal journey that led him to see the tremendous value in user contributions. He creates a taxonomy of the systems that can capture user contributions and shows the variety of ways in which companies from Honda to Procter & Gamble to Hyatt Hotels are leveraging them. And, drawing on his successes and failures in trying to put them to work at Intuit, he offers advice on how business leaders can catalyze action to create user contribution systems in their own organizations.

In the face of the recent institutional breakdown of trust in business, managers are losing legitimacy. To regain public trust, management needs to become a true profession in much the way medicine and law have, argue Khurana and Nohria of Harvard Business School.

True professions have codes, and the meaning and consequences of those codes are taught as part of the formal education required of their members. Through these codes, professional institutions forge an implicit social contract with society: Trust us to control and exercise jurisdiction over an important occupational category, and, in return, we will ensure that the members of our profession are worthy of your trust—that they will not only be competent to perform the tasks entrusted to them, but that they will also conduct themselves with high standards and great integrity.

The authors believe that enforcing educational standards and a code of ethics is unlikely to choke entrepreneurial creativity. Indeed, if the field of medicine is any indication, a code may even stimulate creativity. The main challenge in writing a code lies in reaching a broad consensus on the aims and social purpose of management. There are two deeply divided schools of thought. One school argues that management’s aim should simply be to maximize shareholder wealth; the other argues that management’s purpose is to balance the claims of all the firm’s stakeholders. Any code will have to steer a middle course in order to accommodate both the value-creating impetus of the shareholder value concept and the accountability inherent in the stakeholder approach.

Redefining the terms of competition for a market sector, an industry, or an entire global ecosystem is a tall order. It means attracting thousands of participants, galvanizing their efforts, and retaining their commitment for the long haul. Hagel, Brown, and Davison, of the Deloitte Center for Edge Innovation, provide a blueprint for this daunting task of shaping strategy as technology-driven infrastructures constantly change.

The authors discuss three elements that, no matter the industry, are vital in shaping strategy. A shaping view, or rallying cry to potential participants, clarifies the market opportunity, makes sense of fundamental forces, identifies rewards, and highlights the shared nature of risk. Bill Gates, of course, succeeded with his view of desktop computing, and more recently Salesforce.com’s Marc Benioff has held out a new model for delivering enterprise software. A shaping platform, like that of Google’s AdSense, clearly defines standards and practices that help organize and support the activities of many participants, enabling them to do more with less. Specific shaping acts and assets convince participants that the shaper has the muscle to pull off its initiatives, as Facebook has done by showcasing its relationship with Microsoft. The three elements together allow a shaper to quickly mobilize a critical mass of participants and, thereby, unleash powerful network effects that can yield big rewards during periods of rapid change.

Almost any company will benefit from an attempt to shape strategy, say the authors, but they recognize that not every business is ultimately a shaper. By participating in other firms’ shaping strategies, they show, a company can still find plenty of opportunities to create value.

Most corporations are not as skilled at selling off assets as they are at buying them, often divesting at the wrong time or in the wrong way. Either is a very expensive mistake.

A Bain & Company study has found that over the last 20 years, corporations that took a disciplined approach to divestiture created nearly twice as much value for shareholders as the average firm. In this article, Bain partners Mankins, Harding, and Weddigen set out the four straightforward rules those effective divestors follow.

First: Just as they have acquisition teams, smart divestors have full-time divestiture groups, which continually screen their companies’ portfolios for likely businesses to sell off and think through the timing and implementation steps needed to maximize value in each particular case.

Second: They choose their divestiture candidates objectively. Too many firms rush to sell in economic downturns, when prices are low. Thoughtful divestors will sell only those businesses that do not fit with the corporation’s core and are not worth more to themselves than they are to any other company.

Third: Successful divestors consider how to structure a deal and to whom they will sell as carefully as they consider what units to sell and when. And they are as meticulous about planning the implementation of a deal as savvy acquirers are about postmerger integration.

Fourth: They make a compelling case for how, and how quickly, the deal will benefit the buyer, and they make sure the selling unit’s employees will be motivated to stay on and realize that value.

Using these four rules, companies as diverse as Textron, Weyerhaeuser, Ford, Groupe Danone, and Roche have become “divestiture ready”: consistently able to sell at the right time and in the right way to create the most value for their shareholders.

In today’s innovation-driven economy, understanding how to generate great ideas has become an urgent managerial priority. Suddenly, the spotlight has turned on the academics who’ve studied creativity for decades. How relevant is their research to the practical challenges leaders face?

To connect theory and practice, Harvard Business School professors Amabile and Khaire convened a two-day colloquium of leading creativity scholars and executives from companies such as Google, IDEO, Novartis, Intuit, and E Ink. In this article, the authors present highlights of the research presented and the discussion of its implications.

At the event, a new leadership agenda began to take shape, one rooted in the awareness that you can’t manage creativity—you can only manage for creativity. A number of themes emerged: The leader’s job is not to be the source of ideas but to encourage and champion ideas. Leaders must tap the imagination of employees at all ranks and ask inspiring questions. They also need to help their organizations incorporate diverse perspectives, which spur creative insights, and facilitate creative collaboration by, for instance, harnessing new technologies.

The participants shared tactics for enabling discoveries, as well as thoughts on how to bring process to bear on creativity without straitjacketing it. They pointed out that process management isn’t appropriate in all stages of creative work; leaders should apply it thoughtfully and manage the handoff from idea generators to commercializers deftly. The discussion also examined the need to clear paths through bureaucracy, weed out weak ideas, and maximize the organization’s learning from failure. Though points of view varied, the theories and frameworks explored advance the understanding of creativity in business and offer executives a playbook for increasing innovation.

Forethought

Digital advertising is growing nearly four times as fast as advertising overall; alternative channels cost less than traditional ones; and management increasingly insists on proof of ROI. These converging forces spell the end for television advertising.

Forward-looking companies are using virtual venues to mimic reality, helping employees and business partners collaborate and learn. Their increasingly user-friendly and graphically sophisticated platforms may become the next-generation means of communication.

Every year in the United States billions of philanthropic dollars go to more than 1.5 million nonprofits—some of which use the money inefficiently. But the tools exist to create prediction markets that could guide donors toward the highest social return on investment.

The president and CEO of Travelocity remembers how her father built his environmental-engineering start-up into a business with 300 employees, in part through a striking degree of care for and interest in them as individuals. Peluso has 5,000 employees—and a global organization—but she’s learned to scale up her father’s techniques.

China’s recent transformation is characterized by gradual institutionalization, and Russia’s by what looks like rapid deinstitutionalization. The Chinese tend to think concretely, whereas the Russians lean toward abstractions. Understanding differences like these can help Westerners gain entry into each country’s networks.

The founder and CEO of BzzAgent, a word-of-mouth media company, believes strongly in radical corporate transparency. In practice that can mean frank self-examination in his blogs, publicly posting his company’s sales presentations, and rotating an executive office space among employees at every level.

Trade dress is the legal term for a nonfunctional design feature, such as the cowhide pattern on Gateway’s computer boxes. Many companies don’t know its value or assume that they could sue imitators. Here’s a simple experiment to acquire the data needed for protection.

HBR Case Study

Ruffin CEO Bill Bronson is on a mission. Counterfeits of his company’s adventure gear and clothing are on the rise, and Bronson is hell-bent on stopping them. He has hired top-notch investigators to track down the criminals, invested in technology that will help distinguish his products from look-alikes, and pushed online vendors to stop selling fakes. All of that has cost a lot of money, however, and the problem seems to be getting worse. How far should Bronson take his campaign?

Giorgio Brandazza, a professor at SDA Bocconi School of Management, fought a similar battle as an executive at Calvin Klein. He advises Ruffin to mitigate the effects of copycats by building up the strength of its brand. For one thing, the company should increase its retail presence in countries where it is plagued by fakes. Single-brand stores will allow Ruffin to guarantee customers they’re getting authentic goods, showcase its products in distinctive ways, and build strong relationships with consumers.

J. Merrick “Rick” Taggart, president of Victorinox Swiss Army in North America, recommends zeroing in on the worst counterfeiting offenders. A resource Ruffin should take advantage of, he says, is customs and border patrol officers; if the company frequently communicates with them about ports of entry and consignee and consignor data, these officials can more easily sniff out illegal activity.

The foundation for any good defense against counterfeiters, says Candace S. Cummings, general counsel of VF Corporation, is instituting tight controls over the company’s supply chain and distribution process. That means, among other things, choosing manufacturing partners carefully and having strict contracts with distribution partners that, for example, prohibit products from going anywhere but outlets the company trusts.

First Person

After Kaufman became a CEO, he was struck by how perfunctory the board was in its feedback on his performance. The chair of the compensation committee would pop by his office following the year-end board meeting, congratulate him on the company’s making its numbers, and then hand him an envelope containing the details of his comp package before walking out the door. The entire exchange would last no more than 10 minutes.

That sort of review was a big contrast from the intense evaluations Kaufman received as a senior executive—assessments based on input from many sources and on multiple dimensions of his performance. As chief executive, all of sudden his total worth was summed up in just three or four financial measures.

Although CEOs should have autonomy, reducing performance management to only financial measures makes little sense. All the financial incentives in the world won’t transform CEOs into better decision makers. And bad decisions can bring companies down. Boards have an obligation to shareholders to ensure that companies are led well, and the sooner they can spot problems with leaders’ performance, the better.

With that in mind, Kaufman encouraged Arrow Electronics, where he was CEO for 14 years, to adopt a formal process that obliged independent directors to talk to executives and observe operations firsthand. Directors considered CEO performance in five key areas: leadership, strategy, people management, operating metrics, and relationships with external constituencies. As a result, they picked up on problems Kaufman might not have noticed, provided counsel that made him a stronger leader—and avoided disasters along the way.

Tool Kit

If you run a big company, you might think it’s nearly impossible to grow profits organically. Think again, say MacMillan, of the University of Pennsylvania’s Wharton School, and Selden, of Columbia Business School. Locked inside your firm’s customer records is a wealth of information about what your customers need and how to make more of them profitable to you. Tapped strategically, this information can generate enormous value for your company and give you a big leg up on potential invaders. The authors call it the incumbent’s advantage.

Using the hypothetical example of Mix C-Ment, based on the real experience of concrete manufacturer CEMEX, the authors walk through a step-by-step tutorial on strategic customer segmentation. They demonstrate how investing in and applying research about particular customers’ needs for tailored products, marketing support, and technical services can greatly increase profits. But that requires seeing these offerings not as mere allocated costs but as deliberately invested resources.

To exploit your incumbent’s advantage, build a modest customer-characteristics database and rank your customers according to profitability. Then analyze in detail the needs and behavior of the most and least profitable 20%—and strategically use what you find.

This customer-centric approach to your information should have as its counterpart a corporate structure in which cross-functional teams assigned to specific customer segments make smart resource investments using your evolving knowledge about each segment’s needs and performance. Getting your customer information and your organization to work together in this way is the key to preserving your firm’s dominance while increasing profits at every step of the process.

HBR at Large

Why is that question in the past tense? Because individuals can no longer feel confident that the details of their lives—from identifying numbers to cultural preferences—will be treated with discretion rather than exploited. Even as Facebook users happily share the names of their favorite books, movies, songs, and brands, they often regard marketers’ use of that information as an invasion of privacy.

In this wide-ranging essay, McCreary, a senior editor at HBR, examines numerous facets of the privacy issue, from Google searches, public shaming on the internet, and cell phone etiquette to passenger screening devices, public surveillance cameras, and corporate chief privacy officers. He notes that IBM has been a leader on privacy; its policy forswearing the use of employees’ genetic information in hiring and benefits decisions predated the federal Genetic Information Nondiscrimination Act by three years. Now IBM is involved in an open-source project known as Higgins to provide users with transportable, potentially anonymous online presences. Craigslist, whose CEO calls it “as close to 100% user driven as you can get,” has taken an extremely conservative position on privacy—perhaps easier for a company with a declared lack of interest in maximizing revenue. But TJX and other corporate victims of security breaches have discovered that retaining consumers’ transaction information can be both costly and risky.

Companies that underestimate the importance of privacy to their customers or fail to protect it may eventually face harsh regulation, reputational damage, or both. The best thing they can do, says the author, is negotiate directly with those customers over where to draw the line.

Explore other issues

Partner Center

The email and password entered aren’t matching to our records. Please try again, or reset your password. If you have a username from our previous site, start by using that. Please See our FAQ for more.

If you are signing in for the first time on the new HBR.org but have an existing account, please enter your existing user name and password to migrate your account.Please see Frequently Asked Questions for more information.